William Malcolm

Fin Min Adjusts Growth Forecasts Upward

In a new forecast, the Ministry of Finance (MF) today improved its estimate of economic growth this year to 3.2 percent and next year to 4.2 percent. At the same time, it also improved the estimate of the development of public finances, when this year the public finance deficit expects 7.7 percent of gross domestic product (GDP) and its decline to five percent next year. The Office also informed that the new forecast will serve as a starting point for the macroeconomic framework of the draft state budget for next year and the medium-term budget outlook until 2024. The basic parameters of the budget were approved by the government in early June, with a deficit of 390 billion crowns.

This year, according to the Ministry of Finance, economic growth will be driven by all components of domestic demand, mostly investment and household consumption. Next year, growth should be supported mainly by a recovery in private consumption. “In the forecast, we are working with the scenario that the vaccination procedure of the population and the high number of people who have already undergone covid-19 should avoid the need to adopt other macroeconomically significant anti-epidemic restrictions,” the Ministry of Finance said in the document. Last year, the economy declined by 5.8 percent due to the effects of the covid-19 pandemic.

According to the ministry, the public finance deficit should continue to decline in the coming years, up to 4.1 percent in 2024. Last year, the public finance deficit was 6.1 percent of GDP.

According to the Ministry of Finance, total public debt should rise from 37.8 percent of GDP last year to 43.5 percent of GDP this year. It should rise to 46.2 percent in 2022 and should grow in the coming years to 51.8 percent of GDP in 2024.

Finance Minister Alena Schillerová wrote on Twitter today, and also published an estimate of the development of public finances, which envisages planned savings, adjustments in excise duties, revisions to the taxation of global companies, and the continuation of the reduction of tax exemptions. In that case, the general government deficit would fall to 3.4 percent of GDP by 2024 and total debt would rise to 50 percent of GDP.

The Ministry of Finance’s inflation estimate in the new forecast has significantly increased above three percent this year and next. This year, the office expects average inflation of 3.2 percent and the next year 3.5 percent. Unemployment is expected to rise to three percent this year from 2.6 percent last year. Next year, unemployment should fall to 2.7 percent.

Negotiations on wage growth are also likely to follow from today’s inflation estimates. For example, Deputy Prime Minister Jan Hamáček (CSSD) said today that in negotiations on wages in the public sphere for next year, he will push for an increase of at least 3.5 percent so that they do not fall in real terms after deducting inflation. From the position of Minister of the Interior, Hamáček will also promote an increase in the salaries of police officers and firefighters. At the end of June, trade union leaders threatened possible pressure measures if wages did not at least rise from inflation from January. “After a one-year salary freeze, it is appropriate to reward public sector employees, thanks to which the business community, as well as citizens, have managed the coronavirus time better economically,” he responded on Twitter. foreman Pavel Bednář. The head of the Association of Independent Trade Unions, Bohumír Dufek, recently said that this second-largest headquarters will require the addition of at least ten percent for health professionals.

According to Trinity Bank chief economist Lukáš Kovanda, the Ministry of Finance is preparing the ground for defending a deep deficit with a pessimistic forecast. “The ministry publishes a forecast rather from the lower part of the realistic range of the development estimate, in order to more easily justify the state budget deficit proposed for next year, 390 billion crowns. To push the House even worse than with a less positive outlook, “he said.

In its new forecast from the beginning of August, the Czech National Bank expects economic growth of 3.5 percent this year and 4.1 percent next year. In the August forecast, the Czech Banking Association expects, based on estimates by economists from Czech banks, that the economy will grow by 3.4 percent this year. Next year, economic growth should accelerate to 4.5 percent.

Today, the ministry also published documents for the meeting of the Committee on Budgetary Forecasts, which should assess the new forecast on 30 August. From documents it follows that the collection of personal income tax will fall this year, influenced by this year’s abolition of the super-gross wage or the collection of excise duty on mineral oils. In the case of other taxes, such as corporate income tax or VAT, the state should receive more than last year. For next year, the Ministry of Finance expects a year-on-year decline in the collection of corporate income tax only.

The Ministry of Finance has previously pointed out that the Chamber of Deputies will probably not have time to approve the budget by the October parliamentary elections, even in the first reading. After the elections, the government will have to approve the proposal again and submit it to Parliament.